Retail dip raises hope for another rate cut

Retail sales dived 6.6% from November last year, accelerating from a 6.1% drop in October, Statistics SA said yesterday, 20 January 2010.

Consensus forecasts had pointed to a 5% fall in retail sales, which make up the economy's third-biggest sector. Wholesale trade fell 13% in the year to November, also faster than an 11.4% drop the previous month.

“The figures are telling us we shouldn't dismiss the chances of a rate cut next week or in the first quarter of this year,” said Brait economist Colen Garrow.

The Bank's monetary policy committee holds its first meeting of the year next week.

Most analysts think that mounting evidence of a recovery in the economy's other key sectors — notably manufacturing — will encourage the Bank to keep interest rates on hold this year.

But yesterday's data back the widely held view that SA's recovery from recession will be slow and choppy. Consumer spending is the main growth engine and has shrunk for five quarters in a row, according to official data.

“The retail slump is lasting longer than we previously thought,” Citigroup economist Jean-Francois Mercier said.

He blames the trend on hefty job losses, estimated at more than a million last year, along with shrinking household income.

In contrast, factory output and mining production have improved steadily, responding to a pick-up in global demand and a recovery in SA's inventory cycle.

It takes changes in lending rates up to 18 months to make themselves fully felt, and the five percentage point reduction seen between December 2008 and September last year will start boosting demand later this year.

The data showed that apart from sales of medical goods and pharmaceuticals, all categories of retail sales fell in November.

Household furniture and equipment — also sensitive to rates — fell 3.6%, after a 7.3% drop in October. Sales of clothing, footwear and leather goods plunged by 9.3% — surprising, given the normal upward seasonal trend.

Indications from retailers suggested sales remained weak last month, Investec economist Kgotso Radira said.

During the three months to November, retail sales fell 5.9% compared with the corresponding period in 2008.

Source: Business Day

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